The passion for long term investment is falling? Google says average search volume for search term like day trading is 27,100 per month.
Compared to this, average serach volume for search term long term investment is only 1,600 per month. Experts say that people are no more holding stocks as long as they used to do earlier.
Online trading platforms is becoming more popular among young people.
In news channels I see huge emphasis given on companies quarterly earnings. This may be because they do not have anything worth to speak about.
But this false publicity of short-term earnings is making people drift away from long term investing styles.
Short term focused investing is also not bad. In fact it ensures liquidity of fund for the market. India is a growing economy. It needs long term funds to grow.
If CEO’s have planned a long term growth strategy, their best allies will be long term investors. Even government needs long term investors. Infrastructure development is a must in India.
In order to do it government needs funds which they raise by issuing long term bonds. There are not as many buyers of such bonds as long term focused investors are less.
World must also switch to non-coal based energy. For this, companies like Suzlon, Inox Wind, GE etc needs large funds for research and development.
These companies cannot guarantee much returns today. But in long term these companies will be the king makers. Long term investors can understand the true potential of such companies.
So lets start the discussion from the very basics:
What is long term investing?
When a person buys an asset (like stocks) with expectation of holding it for indefinite time period (say >15 years) is called as long term investing. Normal public cannot think of such long holding periods. In few online-articles I have read authors calling holding period of >3 years as long term. Its not their mistake. Majority people like to day-trade. For them even 3 years looks like long period. But long term Investors (like stock investors) consider periods as long as 15 years as their preferred holding time.
What assets to buy for long term investing?
There are hosts of assets that long term investors can buy. The basic characteristic of long term assets are (1) in shorter time horizon they are risky, (2) their liquidity is very low, (3) their capability to generate good returns will come in effect only when holding is for long term. Based on these 3 parameters we will discuss few best investment options suitable for long term holding. When these assets are held for long term, above average returns becomes almost certain.
Few Best Investment for Long Term
Investment in Infrastructure Sector
Infrastructure sector has great potential as for long term investors. The opportunities that is offered by infrastructure sector is immense. In India, it is estimated that between year 2012/2017, infrastructure spending will be in tune of $1Trillion ($1Lakh Crore). The sectors that considered as infrastructure are Airport, Ports, Railways, Roads/Highways, Power, Water Supply & Sanitation, Telecommunication, Oil & Gas & Warehousing. In 2006-07 Investment in infrastructure in India was 5.71% of GDP. In 2011-12, investment in infrastructure in India rose to 8.37% of GDP. This trend of growing infrastructure linked spending is only growing year after year. The way public & private investments are happening in infrastructure sector in India, it can be easily tagged as the best investment for long term investors. Buying equities of quality companies operating in infrastructure sector is a good idea.
Top 3 venture capital backed companies in India are FlipKart, SnapDeal & Ola. Presently Ola is attracting a lot of media & venture capital firms attentions. It is said that through direct veture capital, Ola has raised funds in tune of Rs 15,600 crores. Ola is not a listed company in Indian stock market. Still is able to generate such high funds for itself. This is possible only because of presence of venture capital funding concept. Venture capital has proved to be an excellent alternative to traditional bank based financing. Venture capital financing supports innovation. Companies that looks innovative are supported by venture capital firms. This is one reason why top venture capital funds have consistently outperformed the market. All big companies that we not consider as top buys were once funded by venture capital firms. To name few are: Apple, Facebook, Amazon, Skype, Starbucks, Paypal, Flipkart, Snapdeal, Uber, Ola etc. For a common man it is not as easy to become a venture capitalist. But for people in position of authority do consider venture capital as the best investment for long term. List of few good venture capital funds in India
Public & Private Equity
Companies can raise funds by issuing its shares to public. This called public equity. Companies can also raise funds by attracting rich individuals or fund houses. This is called private equity. There is a great deal of similarity between venture capital and private equity investment. When rich individuals like Buffett, Bill Gates, Ratan Tata..invests they mostly follow the private equity route. Insurance companies, fund houses, financial institutions do invest in companies through both public & private equity route. For a common man, buying public equity, of quality companies, at regular interval of time, and staying invested indefinitely is a good choice.
Real Estate Property
Real estate can also provide great returns in medium to long term. In fact real estate can start providing returns rather very quickly in form of rent. In short term the rental yield could be as high as 6% per annum. Over a period of time, both rental yield and capital appreciations starts to contribute. A premium property, over a time horizon of say 10-12 years can give fantastic returns. Such premium properties bought at project launch stage gives an advantage. Firstly, in project launch stage the rates are lower. Secondly, in project launch stage investors has more bargaining power. A combination of reputed builder, prime property & zero-loan investment can be THE best investment for long term. Nothing can match the returns of such venture.